On Tuesday, a Senate subcommittee held a hearing on “occupational licensing” laws, which require government-issued licenses to perform certain types of work. Such laws have long existed for doctors, lawyers and others in highly skilled professions, but they are increasingly spreading to low- and mid-skill jobs as well. A White House report last summer found that occupational licensing requirements have increased fivefold since the 1950s, covering more than a quarter of all workers in 2008. Cosmetologists, tree trimmers and even interior designers need licenses in some states.
Defenders of occupational licensing typically argue that the rules help protect consumers and workers, and that’s undoubtedly true in some cases. I want the people filling my cavities to know what they’re doing. But it’s hard not to suspect that in many cases, these rules serve another purpose: to make it harder for new competitors to enter the marketplace. In Nevada, according to Politico, barbers need more than two years of training to qualify for a license; that’s a high bar to anyone looking to break into the business.
Economists call this kind of behavior “rent-seeking,” which is another way of saying “gaming the system to make more money than you’ve earned.” (A company that wins a no-bid contract through political connections is a rent-seeker. So is a CEO who gets a raise by stacking the board of directors with friends.) Occupational licenses are good for existing businesses, which face less competition, and for workers who already have licenses, who according to one study earn roughly 15 percent more than they would in a free market. But they’re bad for everyone else. Research has found that occupational licenses inhibit entrepreneurship, especially among low-income workers. They also raise prices, lower productivity and limit workers’ ability to change careers or cities. One recent study estimated that licensing laws cost the U.S. as many as 2.85 million jobs.
